Despite China’s economy’s slow return after its COVID lockdown, the country is buying almost record oil from abroad and is also seeing an oil production boom. China’s oil imports in June increased 45.3 percent on the year to the second-highest monthly figure on record, with refiners building up inventories despite tepid domestic demand. June oil imports totaled 12.67 million barrels per day–a substantial increase from the 8.72 million barrels per day imported in June last year when its economy was under COVID-19 lockdowns. Despite the large oil import buys and after a years-long lull, Chinese oil production is again booming. From a low point in 2018 to the peak in 2023, China added more than 600,000 barrels a day of extra production – more oil than some OPEC+ nations generate daily. Pumping about 4.3 million barrels a day now, China is again the world’s fifth-largest oil producer, behind the United States, Saudi Arabia, Russia and Canada, and ahead of Iraq.
China’s oil imports increased as its teapot refiners in the eastern province of Shandong increased runs due to China’s lifting curbs on the import of diluted bitumen in late June, helping to ease inventory pressure at its ports. The easing of curbs on China’s top oil-importing province helped free up inflows of heavy oil from Venezuela and Iran. China’s independent refiners, known as teapots, account for more than a fifth of its oil imports and have become top customers of Iranian and Venezuelan oil since late 2019 following U.S. sanctions on the two producers.
Kerosene demand is up strongly on the year as China has resumed its flights after the removal of curbs on travel. However, weakness in the manufacturing and property sectors has hurt demand for diesel, despite government stimulus measures. Oil inventories in China continue to rise against an uncertain macroeconomic backdrop. Onshore oil inventories are estimated at 980 million barrels at the end of June, just 20 million barrels below an all-time record in August 2020.
China’s Oil Production
China spent billions on its state-owned energy giants China National Petroleum Corp., China Petroleum & Chemical Corp. and Cnooc Ltd. to reverse the decline in domestic oil production that started in 2015, lifting output this year to a near all-time high. The recovery reflects the high priority China places on energy security, having directed its state-owned companies to lift domestic spending in 2019, when the country launched its “Seven-Year Exploration and Production Increase Action Plans.” Those measures were a response to a sudden drop in Chinese oil output during the second half of the last decade that increased a sense of insecurity in China. From a peak of nearly 4.4 million barrels a day in 2014, domestic production fell to 3.8 million barrels in mid-2018 due to several factors: the natural depletion of large oilfields discovered in the 1950s and 1960s, a focus during the early 2000s and 2010s on overseas projects at the cost of domestic projects, and overall lower spending on exploration and drilling after oil prices tanked from mid-2014 to early 2016 as OPEC flooded the market in an attempt to bankrupt the U.S. shale oil industry.
Since China became a net oil importer in 1994, its dependence on foreign oil has increased. Imported crude accounted for about 50 percent of the country’s oil consumption in 2008. But its share grew as domestic output struggled and demand increased. By 2019, when the seven-year plans were launched, local output made up just 27 percent of total petroleum consumption. This year, despite rising demand after China abandoned its Zero COVID policy, local production is likely to cover about 29 percent of the country’s total oil consumption.
China’s oil production increases are damping the need to buy oil overseas, complicating the efforts of Saudi Arabia and its OPEC+ allies to control the market. On top of extra Chinese output, OPEC+ is already battling higher-than-expected oil production from several of its own members that are under Western sanctions: Russia, Iran and Venezuela.
Despite a slow return from COVID lockdowns and low overall demand, China is importing almost record levels of oil and upping its domestic oil production to almost record levels, both due to ensuring energy security. While oil demand is up for air travel with the ending of its COVID lockdowns, China’s oil demand is weak in its manufacturing and property sectors as its economic recovery is slow to return to normal. As a result, onshore oil inventories estimated at 980 million barrels at the end of June are just 20 million barrels below an all-time record in August 2020. Thus, China’s oil inventories are much larger than that of the U.S. Strategic Petroleum Reserve (SPR) which President Biden depleted to keep gasoline prices in check before the mid-term election last year. The SPR stands at 347 million barrels from a capacity of more than double that amount—the lowest level since 1983.